Mortgage Daily

Published On: January 18, 2005
S&P Warning Comes as GMAC Mulls New UnitRestructure would result in Residential Capital Corp.

January 18, 2005


Forget ‘RFC’ and ‘GMAC’. How about ‘RCC’?

GMAC said Thursday it is considering a restructuring of its residential mortgage operations. The move would result in a new holding company, with the name Residential Capital Corp., for subsidiaries GMAC Mortgage Corp. and Residential Funding Corp. Upon management and board approvals, GMAC would seek to implement the restructuring sometime in 2005.

Later that day, parent company General Motors Corp. released its outline for 2005 business objectives, saying it expected to earn $4 to $5 per share — down from the $6 to $6.50 it will report for 2004. The anticipated downturn will reflect GM’s planned capital expenditures of $8 billion and weakening profitability of its core North American automotive business mainly due to a $1 billion increase in health care costs.

The earnings drop guidance prompted a review by ratings agency Standard & Poor’s, which affirmed Friday that GM credit ratings remained at ‘BBB-‘ long-term and ‘A-3’ short-term, to voice concern about the company’s long-term prospects.

“Our concerns regarding GM’s ability to improve its competitiveness over a longer time period have grown incrementally in recent months, given the company’s relatively poor sales performance in the U.S. and the aggressive growth plans articulated by competitors,” said S&P credit analyst Scott Sprinzen in the announcement. “In coming months, we will further assess our views regarding GM’s long-range prospects, focusing on the appropriateness of the stable rating outlook.”

The ratings agency said it expects to complete such process by midyear, but will perform a more immediate review if developments warrant such action.

GMAC said the new holding company would seek a stand-alone credit rating, based on its separate capital structure and corporate governance protections, with the purpose of enhancing liquidity and cost effectiveness of the financing of the mortgage operations. “It is GMAC’s intent that the restructuring be designed to avoid any adverse effect on the current and future holders of GMAC debt,” it said in the announcement.

S&P noted that if the restructuring enabled “the existing, substantial intercompany advances extended by GMAC to the mortgage units to be refinanced externally,” the action would represent “a modest positive development for GM and GMAC because it would enhance funding flexibility.”

If restructuring warranted this, S&P said it “could rate this entity somewhat higher than GM/GMAC, in keeping with our long-standing approach to rating noncaptive finance subsidiaries of industrial parents.” Such an approach would be appropriate if the parent experienced financial distress, as it would most likely divest a noncaptive finance business rather than take actions that would harm the subsidiary’s credit quality.

But, “even so, the risks stemming from ownership affiliation could never be dismissed entirely,” the ratings agency said. “Given its predominantly captive role, GMAC will continue to be rated the same as GM.”

Coco Salazar is an assistant editor and staff writer for [email protected]

Tools for Your Next Big Decision.

Amortization Calculator

Affordability Calculator

Mortgage Calculator

Refinance Calculator

FHA Mortgage Calculator

VA Mortgage Calculator

Real Estate Calculator


Pre-Approval Resources!

Making well educated decions in a matter of minutes and stay up to date on the latest news Mortgage Daily has to offer. Read our latest articles to stay up to date on what’s going on…

Resource Center

Since 1998, Mortgage Daily has helped millions of people such as yourself navigate the complicated hurdles of the mortgage industry. See our popular topics below, search our website. With over 300,000 articles, we are guaranteed to have something for you.

Your mortgages approval starts here.

Add 1-2 sentence here. Add 1-2 sentence here. Add 1-2 sentence here. Add 1-2 sentence here. Add 1-2 sentence here.

Stay Up To Date with Today’s Latest Rates


Today’s rates starting at


5/1 ARM
$200,000 LOAN

Home Refinance

Today’s rates starting at


$200,000 LOAN

Home Equity

Today’s rates starting at


$200,000 LOAN


Today’s rates starting at


$200,000 LOAN